CHAPTER-1

INDUSTRY PROFILE

A stock market is a market for the trading of company stock, and

derivatives of same; both of these are securities listed on a stock exchange
as well as those only traded privately.
The term 'the stock market' is a concept for the mechanism that
enables the trading of company stocks (collective shares), other securities,
and derivatives. Bonds are still traditionally traded in an informal, over the
counter market known as the Commodities are traded in commodities
market, and derivatives are traded in a variety of markets (but, like bonds,
mostly 'over-the-counter').
The stocks are listed and traded on stock exchanges which are entities
specialized in the business of bringing buyers and sellers of stocks and
securities together.
The stock market is one of the most important sources for companies
to raise money. This allows businesses to go public, or raise additional
capital for expansion. The liquidity that an exchange provides affords
investors the ability to quickly and easily sell securities. This is an attractive
feature of investing in stocks, compared to other less liquid investments
such as real estate.
History has shown that the price of shares and other assets is an
important part of the dynamics of economic activity, and can influence or be
an indicator of social mood. Rising share prices, for instance, tend to be
associated with increased business investment and vice versa. Share prices
also affect the wealth of households and their consumption. Therefore,
central bank tends to keep an eye on the control and behavior of the stock

market and, in general, on the smooth operation of financial system

functions. Financial stability is the raison d'tre of central banks.
Exchanges also act as the clearinghouse for each transaction,
meaning that they collect and deliver the shares, and guarantee payment to
the seller of a security. This eliminates the risk to an individual buyer or
seller that the counterparty could default on the transaction.
The smooth functioning of all these activities facilitates economic
growth in that lower costs and enterprise risks promote the production of
goods and services as well as employment. In this way the financial system
contributes to increased prosperity.

CHAPTER-2
COMPANY PROFILE
4

Shah Investors Home LTD

It was establish in 1980

Mission is to provide excellent service in the stock market, in the

capital, Future and options segment as a depository participant.

Accumulated expertise of 25 years under their thinking cap.

As I have undertaken summer project training under the guidance of Mr.

Kishore Parikh being the remissor of shah investment pvt. Ltd. So there is
no requirement of the company profile.

CHAPTER-3
6

THEORETICAL
ASPECTS

CONCEPTUAL FRAME WORK

INTRODUCTION:
What is volatility?
The dictionary meaning of the word volatility means the rapid changes
or unpredictable.
7

Volatility most frequently refers to the standard deviation of the

change in value of a financial instrument with a specific time horizon. It is
often used to quantify the risk of the instrument over that time period.
Volatility is a measure of uncertainty of the return realized on an asset.
Volatile market carries wide fluctuations on either side. It offers
(fluctuations) false signal for investment. In order to estimate, understand
and forecast these fluctuations, volatility indicator is developed by some
researchers to serve above purpose.
In other words, volatility refers to the amount of uncertainty or
risk about the size of changes in a security's value. A higher volatility means
that a security's value can be spread out over a larger range of values. This
means that the price of the security can change dramatically over a short
time period in either direction. Whereas a lower volatility would mean that a
security's value does not fluctuate dramatically, but changes in value at a
steady pace over the period of time.
Volatility is a measurement of change in price over a given period. It is
usually expressed as a percentage and computed as the annualized
standard deviation of the percentage change in daily price. The more volatile
a stock or market, the more money an investor can gain (or lose) in a short
time.
Types of volatility:
1. Standard deviation:

Standard deviation of a probability distribution, random variable,

or population or multi-set of values is a measure of the spread of its
values. It is usually denoted with the letter (lower case sigma). It
is defined as the square root of the variance. In other words, the
standard deviation is the root mean square (RMS) deviation of
values from their arithmetic mean.
Standard Deviation=

( x x)

The standard deviation is the most common measure of statistical

dispersion, measuring how widely spread the values in a data set is. If the
data points are close to the mean, then the standard deviation is small. As
well, if many data points are far from the mean, then the standard deviation
is large. If all the data values are equal, then the standard deviation is zero.

2. Chaikins volatility:
It is based on the difference between the high and low prices posted
by the scrip. The higher the difference between the high and the low
prices, the higher would be the volatility. In the oscillator, a ten period
average of the difference between the high and the low prices is first
calculated. Then a ten period ROC is calculated of the average values.

Example of chaikins volatility

3. Wilders volatility:
It is based on concept of true range. The true range is defined as the
greater value obtained from the three equations:
Current high current low
Previous periods close- current low
Previous periods close- current high.
The true range so calculated is averaged to get the wilders volatility.
High volatility would indicate that possibility of a top being formed and low
values of volatility would indicate the possibility of a bottom being formed.

10

4. Beta volatility:
This method is to calculate each stocks average daily or weekly price
change over that past year or two. A far more sophisticated approach is to
correlate a stocks daily or weekly percent price changes of a broad based
market index. This type of relative volatility is called a beta.
A beta tells not just how volatile a stock volatile it has been relative to
the market. It describes the relationship between the stocks return and
index return.
5. Square root volatility:
Square root rule states that given a certain market advances all stocks
change in price by adding a constant amount to the square root of their
beginning prices.
Example: if the average priced stock advances from 25 to 36, the square
root of the average price has moved from 5 to 6 or, up by 1 point.
6. Implied volatility:
Volatility implied from an option price. In terms of finance, the implied
volatility of contract i.e. option is the volatility implied by the market price of
the option based on an option pricing model.
7. Volatility smile:

11

Variation of implied volatility with strike price.

8. Volume volatility:
It refers to the number of shares or contracts traded in a security or
an entire market during a given period. Volume is normally considered on a
daily basis, with a daily average being computed for longer periods.
Example

Large increases in volume can be seen on days [1],[3] and [5] - when closing
price

falls

sharply,

signaling

that

distribution

is

taking

place.
12

There is unusually low volume on days [2] and [4], both are inside days
signaling uncertainty.
9. Historical volatility (or ex-post volatility):
It is the volatility of a financial instrument based on historical
returns.

CHAPTER 4
RESEARCH
METHODOLOGY
13

2.1 Research statement:

To study volatility of BSE SENSEX.

2.2 Objective:
Primary objective:
Study of volatility of BSE SENSEX
Secondary objectives:
-To measure risk through volatility.
-To know the average relationship between standard deviation and
closing price through regression analysis.
-To check the volatility of intra day.

14

-To study the impact of bse sensex volatility change on different sectors
stocks/scripts through correlation.

2.3 Research methodology:

Research methodology is the systematic design, collection and analysis
and reporting of data and findings, relevant to appraisal specific personnel
situation facing the company. Research methodology describes the research
procedure covers the following:
(A) Research design
(B) Data collection method

(A) Research Design:

It is an overall framework of project that indicates what information to be
collected from which sources and by which procedures. It is the blueprint
for the collection, measurement and analysis of data.
Research study is the plan structure and strategy of investigation
conceived so as to obtain answers to research queries and to control
variance.
Descriptive research design is used for this study.
(B) Data collection method:

15

There are two sources of data:

1. Primary data sources
2. Secondary data sources
Here, secondary data collection method is used, which are collected from
website of www.bseindia.com.
Statistical test used:
Coefficient of correlation and regression analysis are used for statistical test.
How to conduct statistical test:
The statistical test are conducted in Microsoft excel.
Sample period:
The study has included data from 1989 to 2007 JAN. in almost all the
cases except for SBI which went public in 1994 and Infosys which was
started in 1993.
About the study:
These study focuses on the volatility of BSE SENSEX i.e. through
monthly and weekly data of index, but the findings of it cant be generalize
on each and every stocks or scripts. Therefore four scripts from four
different sectors are taken into consideration they are:
Cipla (pharmaceutical co.)
Infosys (Information technological co.)

16

Reliance Industries ltd

State bank of India (Bank).
The above companies are selected as they are the leading companies in
there respective sector so there findings can be generalized on different
companies of each sector.
Benefits from the study:
Through this project I got the practical training of research
It helps the investors to identify the risk associated with each
company under study. It facilitates their investment decisions.
Organization can use this data for further study also.
It can also use to measure risk.

Limitations of study:
In each and every study there are limitation, which lead that project
is not the perfect study though there can be the hard work and sincere
efforts.

17

Efforts are made to make the study successful, but it is impossible to

do away with all human intervention and unavoidable circumstances there
are some limitations on which project is lacking far behind for some extent.
Following are the limitations of my study.
Time act as a constraint.
Scope of study is limited.
Project also focuses on the volume volatility but BSE SENSEX does
not give volume data.

18

CHAPTER - 5
DATA ANALYSIS &
INTERPRETATION

19

DATA ANALYSIS:
Methods employed for the study are as follow:
1. Standard deviation is the one of the measure of volatility.
A. Standard deviation is calculated on closing price
1.1 BSE weekly

In 1.1 maximum volatility is 813.4155 on 9/6/2006 and minimum is

11.29047.

20

1.2 BSE monthly.

Inference:
In1.2 maximum volatility is 1019.18 on 30/11/2006 and minimum is
15.3709 on 27/1/1989.
Wider fluctuations can be seen in weekly volatility compare to monthly this
shows that consistent trend can be obtain in monthly volatility compare to

21

weekly. Whether it is monthly or weekly data, period of year 2006 can be

considered to be the most volatile year.

1.3 Cipla weekly

Inference:

22

1.3 is the graph of cipla weekly data, maximum volatility is 541.18413 on

28/5/2004 and minimum is 0.07059 on 6/7/1990 whereas mean value is
23.1029. The values which are very far away from mean shows the price
fluctuations are higher.

1.4 Infosys weekly.

23

1.4 is the graph of Infosys weekly data, maximum volatility is 148.171 on

18/2/2000 and minimum is 0.46735 on 22/7/1993 whereas mean value is
24.5633.
1.5

Infosys monthly

1.5 is the graph of Infosys monthly data, maximum volatility is 232.2 on

29/2/2000 and minimum is 0.90844 on 31/10/95 whereas mean value is
51.7056.
1.6 Reliance weekly

24

1.6 is the graph of reliance weekly data, maximum volatility is 108.7 on

14/11/1997 and minimum is 0.894427 on 7/6/1990 and 15/6/1990 i.e.
remains constant for one week whereas mean value is 15.2273.

1.7 Reliance monthly

25

1.7is the graph of reliance monthly data, maximum volatility is 166.16 on

29/6/2007 and minimum is 2.5767 on 29/9/2000 whereas means value is
33.5106.
Reliance monthly does not shows wide fluctuations as weekly, after the
period of 2005 in monthly data, volatility does not reaches below maximum
bottom. There is increase in volatility at a diminishing rate.

26

1.8 SBI weekly

1.8 is the graph of SBI weekly data, where maximum volatility is 85.9865 on
1/12/2006 and minimum is 0.4899 on 1/9/1995 whereas mean value is
14.7913.
1.9 SBI monthly

27

1.9 is the graph of the of SBI monthly, where maximum value is 225.75 on
4/7/2007 and minimum is 5.3884 on 27/2/1999 whereas mean value is
34.9086.

Inference:
From the entire above, maximum volatility can be seen in month wise data
analysis whereas minimum value can be seen in week wise data analysis.
The cipla is considered to be attaining the highest volatility i.e.541.1841 in
the year 2004 which is highly deviated from the mean value i.e.23.1029 as
compared to any other stocks.
BSE SENSEX index faced highest volatility in the year 2006.
Low value of standard deviation indicates that possibility of a bottom being
reached and high value of it indicate that a top being formed.

28

Wider fluctuations can be seen in weekly volatility compare to monthly this

shows that consistent trend can be obtain in monthly volatility compare to
weekly.

B. Standard deviation calculated on the basis of absolute value.

As we need to check the validity of the available data. So we use two
methods viz. closing price magnitude and ratio of the closing price. This is
done to smoothen out any inconsistency in the data that is available to us.
The test that is time dimension is considered where t2-t1 and t2/t1 is
applied. This is taken to have a test of validity and to know the whether this
test is best fit or not in a modified data (t2-t1 and t2/t1).
(1) The below is the standard deviation taken from the absolute value i.e.
(current close price previous close price) and its standard deviation.

29

BSE monthly: The below is the graph of standard deviation of t2-t1.

Maximum value 936.665 on 31/5/2006

Minimum value - 22.4038 on 24/2/1989
Bse weekly

30

Maximum value 2458.6896 on 11/3/1994. Minimum value 8.9934 on

20/7/1990
Cipla weekly - S.D. @ t2-t1 close price

31

Maximum value 443.0707 on 21/5/2004, Minimum value 0.0947 on

10/5/1990
Infosys monthly: S.D.@ t2-t1 close price

Maximum value 166.9094 on 28/4/2000

Minimum value 1.9690 on 31/10/1995

32

Infosys weekly: The below is the graph of standard deviation of t2-t1

Maximum value 245.879 on 31/2/2000

Minimum value 0.2087 on 15/7/1994
Reliance monthly:

33

Maximum value 136.6332 on 31/5/2006

Minimum value 3.3075 on 29/9/2000.
Reliance weekly

34

Maximum value 90.2802 on 7/11/97

Minimum value 1.1402 on 15/6/90

SBI monthly

Maximum value 139.6924 on 31/5/2007

35

Minimum value 7.31368 on 29/11/1996

SBI weekly

Maximum value 84.2867 on 14/12/2006

Minimum value 1.2083 on 8/9/95
(2) The below is the standard deviation taken from the absolute value i.e.
(current close price / previous close price) which indicates volatility of
absolute value.
BSE Monthly:

36

Maximum value 0.260655 as on 5/29/1992

Minimum value 0.013479 as on 4/28/1995
Average value 0.07064, maximum values lies between 0.05 and 0.1.
Values which are above and far away from average values are considered to
outliners, so values above 0.1 are considered to be the outliners.

Cipla weekly:
The below is the graph of standard deviation at t2/t1 of cipla weekly data

37

Maximum value 0.3392 as on 14/5/2004

Minimum value - 0.006985 as on 10/5/1990
Average value 0.05312, therefore values which are far from mean value are
considered to be outliners.

Infosys weekly:

38

The below is the graph of standard deviation at t2/t1 of Infosys weekly.

Maximum value 15.30199 as on 1/24/1997

Minimum value 0.1432 as on 3/24/2005

39

Infosys Monthly:
The below is the graph of the standard deviation on t2/t1 of Infosys monthly

Maximum value 0.3295 as on 4/29/1999

Minimum value 0.03461 as on 6/30/2004
Average value 0.1154.
The values are near to the mean value which indicates very less fluctuation.

40

Reliance weekly:
The below is the graph of the standard deviation on t2/t1 of Reliance
weekly.

Maximum value 0.2351 as on 10/4/07

Minimum value 0.00154 as on 8/5/2006
Values fluctuate above and below 0.05.

41

Reliance monthly: The below is the graph of standard deviation of t2/t1 of

Reliance monthly.

Maximum value 0.45331 as on 6/21/1992, Minimum value 0.02287 as

on 8/15/2000.
SBI weekly:

42

The above is the graph of SBI weekly of Std. deviation at t2/t1.

SBI Monthly:
The below is the graph of SBI monthly of standard deviation at t2/t1

43

Inference:
Through original data we concluded that the maximum value are
obtained in month wise data analysis but here maximum volatility is seen in
week wise data analysis (in absolute data analysis). Here more fluctuation
can be seen in month wise data analysis than week wise data analysis.
Further trend can not be determined through absolute value.
If absolute value of t2/t1 and its standard deviation are taken than
they show very low value that volatility can not be measured.
In BSE weekly very few fluctuations are seen and the values which are
very far from the mean are considered to be out liners.
Limitations of the standard deviation method
It gives more weight age to extreme items and less to those which are near to
the mean.
2. Chaikins volatility: It is the measurement of volatility of intra day
trading.
2.1 BSE monthly:

44

High value of chaikins volatility indicates that there are wide fluctuations
during intra day.

2.2 BSE weekly:

45

2.3 Cipla weekly:

2.4 Infosys weekly:

46

2.5 Infosys monthly:

Maximum value 523.024 on 28/11/1997,Minimum value 38.9503 on

31/8/1995

47

2.6 Reliance weekly:

Maximum value 446.9388 on 10/4/1992, Minimum value 41.1048 on

6/2/1998

48

2.7 Reliance monthly

Maximum value 313.4752

Minimum value (-71.4251)
2.8 SBI weekly:

49

Maximum value 257.6273 on 15/12/1995, Minimum value 55.038 on

15/7/1994
2.9 SBI monthly:

50

Maximum value 233.4691 on 30/6/1999,

Minimum value 53.0883 on 29/10/2004.
Inference:
The higher the difference between the high and the low prices, the
higher would be the volatility and vice versa.
Chaikins volatility indicator measures the volatility of security. High
values indicate that prices are changing a large amount during the day. Low
values indicate that prices are staying relatively constant. Both trending and
level can have high or low volatility. ROC = current difference of average high
n low /ten days ago difference of average high n low*100.

3. Volume volatility:

51

BSE SENSEX volume data are not available.

Standard deviation as a measure of volatility on volume.
3.1

cipla S.D. @ volume

(a) Original values are taken to calculate standard deviation.

Inference:
Maximum value 2188356 on 26/5/2006
Minimum value 58 on 29/1/93 & 5/2/93
In above chart in the initial period fluctuations are very minute and upto
certain extent values remain constant for particular period of time i.e. 190
is constant for 3 weeks.

52

(b) Below is the graph of standard deviation of t2-t1 i.e. absolute value to
measure volatility of volume.

Maximum value is seen on 26/5/2006 after which stock enters into bear
trend. Minimum value as on 13/12/1993, after this, stock has the bullish
trend and that to longer period of time.

53

(c) Below is the graph of standard deviation of t2/t1 i.e. absolute value to
measure volatility of volume.

Maximum volatility as on 21/11/1997

and minimum volatility on

22/4/1994.

54

3.2

Infosys weekly:

(a) Below is the graph, of Original values which are taken to calculate
standard deviation.

(b) Below is the graph of standard deviation of t2-t1 i.e. absolute value to
measure volatility of volume.

55

(c) Below is the graph of standard deviation of t2/t1 i.e. absolute value to
measure volatility of volume.

Maximum value as on 1/10/1997, minimum value is 0.

56

3.3

Infosys monthly:

(a) Below is the graph, of Original values which are taken to calculate
standard deviation.

Inference:
Maximum value- 4122546.4 on 31/5/2001, Minimum value- 10612.44 on
31/1/96.
More fluctuations can be seen in the weekly volume compare to monthly
volume volatility; in long run one can avoid risk due to less fluctuation.

57

(b) Below is the graph of standard deviation of t2-t1 i.e. absolute value to
measure volatility of volume.

Maximum value was on 5/31/1996, minimum value was on 4/29/1994.

58

(c) Below is the graph of standard deviation of t2/t1 i.e. absolute value to
measure volatility of volume.

Maximum volatility was on 5/31/1996, minimum as on 4/29/1994.

Inference:
High value of standard deviation indicates high volatility. From above
charts we can conclude that, an increase in volatility may well mark a turn
in the direction of a bearish trend and over longer term, a decrease in
volatility would indicate the possibility of a significant bull market top being
approached.

59

3.4

Reliance weekly:

(a) Below is the graph, of Original values which are taken to calculate
standard deviation.

Maximum value 3160102.65 on 13/4/2006

Minimum value 342666.65 on 6/1/1995
(b) Below is the graph of standard deviation of t2-t1 i.e. absolute value to
measure volatility of volume.

60

Maximum value was as on 4/7/2006 and minimum value was on

10/21/1998.

61

3.5

Reliance monthly:

(a) Below is the graph, of Original values which are taken to calculate
standard deviation.

Inference
Maximum value: 60248999.52 on 29/11/1996
Minimum value: 869276.64 on 31/1/90
Low volatility indicates that fluctuations has dried up and high volatility
value which are very far away from mean value that values are considered to
be the outliners.

62

(b) Below is the graph of standard deviation of t2-t1 i.e. absolute value to
measure volatility of volume.

Maximum value was in 10/31/1996 and minimum was on 2/28/1989.

63

3.6

SBI weekly:

(a) Below is the graph, of Original values which are taken to calculate
standard deviation.

Inference:
Maximum value: 1360552.698 on 28/5/1999, Minimum value: 58885.69
on 7/10/1994.
(b) Below is the graph of standard deviation of t2-t1 i.e. absolute value to
measure volatility of volume.

64

(c) Below is the graph of standard deviation of t2/t1 i.e. absolute value to
measure volatility of volume.

65

3.7

SBI monthly:

(a) Below is the graph, of Original values which are taken to calculate
standard deviation.

Inference:
Maximum value: 47046084.42 on 31/7/1996, Minimum value: 231870.048
on 23/12/94.
(b) Below is the graph of standard deviation of t2-t1 i.e. absolute value to
measure volatility of volume.

66

(c) Below is the graph of standard deviation of t2/t1 i.e. absolute value to
measure volatility of volume.

67

Inference:
Low volatility indicates that fluctuations has dried up and high
volatility value which are very far away from mean value that values are
considered to be the outliners.
An increase in volatility may well mark a turn in the direction of a
bearish trend and over longer term, a decrease in volatility would indicate
the possibility of a significant bull market top being approached.

68

4. Correlation analysis:
It deals with the association between two or more variation. It
attempts to determine the degree of relationship between variables.

CIPLA
BSE

INFOSYS

-0.08437

0.901543

SBI
0.81966

RELIANCE
0.445132075

BSE
1

There is linear high degree positive relationship between Bse Sensex and
Infosys. Similarly there is high degree positive relationship between Bse
Sensex and SBI.
There is non linear high degree negative relationship between BSE
Sensex and Cipla. There is low degree positive relationship between BSE
Sensex and Reliance.
From the above correlation we can conclude that price movement in Bse
Sensex index has direct effect on INFOSYS and SBI price movement in same
direction and vice versa.
Inference:
There is positive relationship between BSE SENSEX and INFOSYS
where as there is negative relationship between BSE SENSEX and CIPLA.
Positive relation indicates that there is high degree direct relationship

69

between BSE SENSEX and INFOSYS. And negative relation indicates there
is low degree indirect relationship between BSE SENSEX and CIPLA.

5. Regression Analysis:
It gives average relationship between two or more variables. Therefore
it is useful in estimating and predicting the average value of one variable for
a given value of another variable.
It provides estimates of values of the dependent variables from the
values of independent variables.
The second goal of regression analysis is to obtain a measure of
the error involved in using the regression line as a basis for
estimations.
R2= bxy*byx.
5.1 BSE Weekly:

70

The above is the graph of regression (R2) between the closing price of the
BSE SENSEX weekly and standard deviation on close price.
On date 8/10/90 R2 is 0.93368, on 11/26/93 R2 is 0.965475, on
1/9/04 R2 is 0.963724. This shows strong relationship between closing
price and its standard deviation.
On the other hand on 5/25/90 R 2 is 0.002199, on 12/1/00 R2 is
0.000151 this shows far away relationship between closing price and its
standard deviation.

71

The above is the graph of R2 between absolute value i. e. current

closing price previous day closing price and its standard deviation. Most of
the values are between 0.001 and 0.15 this shows very low relationship
between difference of close price and its standard deviation.

72

The above is the graph of the regression between absolute value i. e.

current close price / previous day close price and its standard deviation.
Only on the date 3/4/94 R2 is 1 this shows strong relationship between
ratio and its standard deviation. But on the contrary, most of the value falls
between 0 to 0.2 as on date 3/16/90, 3/8/91, 1/12/96, 7/4/03, 4/29/05,
etc. this shows no close relationship between ratio of closing price and its
standard deviation. So we cant compare with the index. It does not indicate
true market position. Therefore we should rely on original value rather than
on any derived value.

73

5.2 BSE Monthly:

The above is the graph of the R 2 between closing price and its standard
deviation.

74

The above is the graph of R2 between absolute value i. e. t2-t1 and its
standard deviation.

75

The above is the graph of the R2 between t2/t1 and its standard deviation.

5.3

Cipla weekly:

(a) The graph of R2 between close price and its standard deviation

76

(b) the graph of R2 between t2/t1 and its standard deviation.

The maximum values are between 0.1 and 0.2.

(c) The graph of the R2 between t2-t1 and its standard deviation.

77

Maximum values falls between 0.1 and 0.2.

78

5.4

Infosys weekly:

(a) The graph of R2 between close price and its standard deviation.

Maximum value falls between 0.2 and 0.6.

79

(b) the graph of the R2 between t2-t1 and its standard deviation.

Here maximum values are less than 0.2.

(c) the graph of R2 between t2/t1 and its standard deviation.

80

Maximum values falls below 0.3.

5.5

Infosys Monthly:

(a) The graph of the R2 between close price and its standard deviation.

(c) the graph of R2 between t2/t1 and its standard deviation.

81

5.6

Reliance weekly:

(a) the graph of the R2 between close price and its standard deviation.

(b) the graph of the R2 between t2-t1 and its standard deviation.

82

(c) The graph of the R2 between t2/t1 and its standard deviation.

5.7

Reliance monthly:

(a) The graph of the R2 between close price and its standard deviation.

83

(b) the graph of R2 between t2-t1 and its standard deviation.

(c) the graph of the R2 between t2/t1 and its standard deviation.

84

5.8

SBI Weekly:

(a) the graph of the R2 between close price and its standard deviation.

85

(b) is the graph of the R2 between t2-t1 and its standard deviation

(c) The graph of the R2 between t2/t1 and its standard deviation.

5.9

SBI monthly:

86

(a) The graph of the R2 between close price and its standard deviation.

(b) the graph of R2 between t2-t1 and its standard deviation.

(c) the graph of the R2 between t2/t1 and its standard deviation.

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Inference:
Maximum value ranges between 0.2-0.6
This shows that investor is having good idea about the trend prevailing in
the market by seeing the standard deviation of closing price.
Good regression or close regression reflect that less fluctuation is there &
more reliable picture came into existence and vice-versa.
From above graph it seems that original values and t2-t1 regression shows
concrete relationship, but in case of t2/t1 regression shows value below 0.7.
So from this we can say that original values and t2-t1 regression represent
stock well with the closing price and standard deviation.

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89

CHAPTER 6
FINDINGS &
CONCLUSION

CONCLUSIONS:

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 BSE SENSEX index faced highest volatility in the year 2006.

Reliance monthly does not shows wide fluctuations as weekly, after
the period of 2005 in monthly data, volatility does not reaches below
maximum bottom. There is increase in volatility at a diminishing rate.
The cipla is considered to be attaining the highest volatility
i.e.541.1841 in the year 2004 which is highly deviated from the mean
value i.e.23.1029 as compared to any other stocks.
Cipla is the most volatile stock compare to other three stocks and SBI
is less volatile stock.
Chaikins Volatility peak occurs as the market retreats from a new
high and enters a trading range.
The market ranges in a narrow band - note the low volatility.
The breakout from the range is not accompanied by a significant rise
in volatility.
Volatility starts to rise as price rises above the recent high.
A sharp rise in volatility occurs prior to a new market peak.
The sharp decline in volatility signals that the market has lost
impetus and a reversal is likely.
Market tops would formed by an increase in volatility and market
bottoms would be formed by a decrease in volatility.
High value of standard deviation shows high volatility but trend can
not stay at a high value for a longer period of time and so it has to come
down, low volatility value shows that the fluctuation has dried up.

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Low values of standard deviation would indicate the possibility of a

bottom being reached i.e. low volatility and high value of standard deviation
would indicate the possibility of a top being formed i.e. high volatility.
High value indicates high volatility and vice versa. The values which
are above and far away from the mean value are considered to be outliners.
High volatility means high risk and low volatility means low risk.
Modified data shows very minor fluctuations so it cant be used in
measuring volatility or risk.
An increase in volatility may well mark a turn in the direction of a
bearish trend and over longer term, a decrease in volatility would indicate
the possibility of a significant bull market top being approached.
Example: After reaching at new high of 909.47 as on 4/30/1992, BSE
Sensex closing price volatility mark a turn of bear trend and that to a longer
period of time. A decrease in volatility upto 82.24 as on 4/30/2004, Bse
Sensex closing price volatility showed the indication of bull market for top
being approached.
Investors have to look upon R2 of closing price and standard deviation
of monthly and weekly data for better insight.

VOLATILITY FOR MARKET PLAYERS:

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Volatility is often viewed as a negative in that it represents uncertainty

and risk. However volatility can be good in that if one shorts on the peaks,
and buys on the lows one can make money with greater money coming with
greater volatility. The possibility for money to be made via volatile market is
how short term market players like day traders hope to make money and is
in contrast to the long term investment view of buy and hold.

VOLATILITY DOES NOT IMPLY DIRECTION:

An instrument that is more volatile is likely to increase or decrease in
value more than one that is less volatile.

VOLATILITY OVER TIME:

During some periods prices go up and down quickly while during
other times they might not seem to move at all. Periods when prices fall
quickly (a crash) are often followed by prices going down even more or going
up by an unusual amount. Also a time when price rise quickly (a bubble)
may often be followed by prices going up even more or going down by an
unusual amount.
Volatility refers to the amount of uncertainty or risk about the size of
changes in a security's value. A higher volatility means that a security's
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value can potentially be spread out over a larger range of values. Meaning
that the price of the security can change dramatically over a short time
period in either direction. Whereas a lower volatility would mean that a
security's value does not fluctuate dramatically, but changes in value at a
steady pace over a period of time.

CHAPTER 7

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RECOMMENDATIONS

RECOMMENDATION:
High volatility levels can sometimes be used to time trend reversals such
as market tops and bottoms. Low volatility levels can sometimes be used
to time the beginning of new upward price trends following period of
consolidated.
The values which are far away from the mean are considered to be the
outliners, at this period it not advisable for investors to invest. Example
volatility of cipla was 514.18 during the year 2004 which is far deviated
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from the mean value of 23.1029. During this period it is risky on the
part of the investor to invest in such stock.
Volatility can be good in that if one shorts on the peaks, and buys on the
lows one can make money with greater money coming with greater
volatility. The possibility for money to be made via volatile market is how
short term market players like day traders hope to make money and is in
contrast to the long term investment view of buy and hold.
Cipla stock volatility was highest in 2004 and lowest in 1990. So selling
at peaks and buys on lows would help investor to earn more.

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BIBLIOGRAPHY

BIBLIOGRAPHY:
Reference Books:

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Norman G. Fosback (1998), Stock Market Logic, Tata Mc. Graw Hill
John C. Hull (fifth edition), Option, futures and Derivatives, Delhi: Pearson
education (Singapore) Pte. Ltd.
S. P. Gupta (2004) , Statistical Methods, New Delhi : Sultan Chand & Sons
Education Publications

Business Research Methods , Donald R Cooper & Pamela S. Schindler ,

Eight Edition , Tata Mc. GRAW-HILL EDITION

Websites:
http://en.wikipedia.org/wiki/volatility
http://en.wikipedia.org/wiki/standard deviation
http://www.esignalcentra.com/support/futuresource/workstation/help/ch
arts/studies/wilders_volatility.htm
http://en.wikipedia.org/wiki/beta_coefficient
http://en.wikipedia.org/wiki/implied_volatility
http://www.trade10.com/volatility.htm
http://stockcharts.com/school/doku.php?id=chart_school:glossary_v

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http://www.incrediblecharts.com/technical/volume.htmhttp://www.incredi
blecharts.com/technical/chaikin_volatility.htm

www.matstat.com

www.statisticxl.com

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